When a whole country tries to get richer by printing more money, it rarely works because if everyone has more money, prices will go up instead and people finds that they need more amount of money to buy the same good. This had already happened in Zimbabwe, Venezuela.
Major factors effects in printing more money
It refers to the rise in the prices of goods and services of commonly used products and services such as food, clothing, housing, transport, FMCG, etc. It measures the average price change in commodities and services over time. The opposite or fall in the price index of items is called ‘deflation’. Inflation is an indicator of the decrease in the purchasing power of a unit of a country’s currency. This is measured in percentages.
Effects of Inflation on printing more money
The purchasing power of a currency unit decreases as the commodities and services get dearer. This also impacts the cost of living in a country. When inflation is high, the cost of living gets higher as well, which ultimately leads to a depress in economic growth. A certain level of inflation is required in the economy to ensure that expenditure is promoted and money through savings is demotivated. As money generally loses its value over time and it is important for people to invest the money because investing ensures the economic growth of a country.
Is Inflation bad for everyone?
Inflation is taken differently by everyone depending upon the kind of assets they possess. For someone with investments in real estate or stocked commodity, inflation means that the prices of their assets are set for a hike. For those who work on cash, they may be adversely affected by inflation because the value of their cash falls.
Gross Domestic Product
GDP stands for “Gross Domestic Product” and represents the total monetary value of all final goods and services produced (and sold on the market) within a country during a period of time (1 year). The modern concept was developed by the American economist Simon Kuznets in 1934 which was adopted as the main measure of a country’s economy in 1944 to date.
What does “Gross” stand for?
“Gross” (in “Gross Domestic Product”) indicates that products counted regardless of their subsequent use and the final “sales receipt” will be added to the total GDP value.
Nominal (Current) GDP v/s Real (Constant) GDP
Nominal GDP (“Current GDP”) = It is the face value of output and without any inflation adjustment in it.
Real GDP (“Constant GDP”) = It is the value of output adjusted for inflation or deflation. It allows us to analyze whether the value of output has changed or not Real GDP is used to calculate GDP growth.
How to calculate GDP?
GDP can be calculated in three ways:
By using the production, expenditure or income approach. All methods give the same result.
- Production approach:- It is the sum of the “value-added” (total sales – the value of intermediate inputs) at every stage of production.
- Expenditure approach:– It is the sum of purchases made by final users.
- Income approach:- It is the sum of the incomes generated by production
Why is GDP Important to Economists and Investors?
Gross Domestic Product represents the economic growth and rate of production of a nation. It is the primary indicator used to determine the overall well-being of a country’s economy and standard of living. One way to determine how well a country’s economy is developing by its GDP growth rate. This rate depicts the increase or decrease in the percentage of economic output monthly, quarterly, or yearly.
GDP indicates economists and policymakers about whether the economy is weakening or progressing if it needs improvements or restrictions, so the proper measures will be implemented. From this evaluation, government agencies can determine their monetary policies that are needed to address economic issues.
Minimum Reserve System
Currency issued in the country is dependent upon the reserves
A reserve means the following:-
- Bullion reserves
- Foreign exchange reserves
- Balance of Payment (BOP) only receivables.
In India, currencies are supplied by the RBI with the backing of bullion reserves, foreign exchange reserves (foreign currencies), and Balance of payment (only receivables). For the issue of new currencies, RBI follows Minimum Reserve System at present.
Solid and Mutilated note
It notes means a currency that has become dirty due to usage. The mutilated banknote is which a portion is missing or which is composed of more than two pieces of the torn ones.
Soiled and mutilated banknotes are not fit for circulation so they are withdrawn from circulation after duly accounting for them in the records of the RBI. These are then burnt provided at the regional offices of the RBI under strict vigilance and supervision of the RBI officials. The accounting of these banknotes makes it possible for the RBI to work out the printing of the new banknotes in order to replace the burnt currency notes.
After looking up all the necessary measures and factors the RBI consults with the Union Government also and if they allow RBI then the new currency is issued in the market.
In order to increase the economy, the country should increase its production. Export their goods to other countries and raise the economy. Printing of new currency is not a solution to raise the economy. If you have more money and fewer things to buy, then the money will loosen its importance and it will then become a waste paper.